Silver Has Biggest Three-Day Drop Since 1983

Silver had its biggest three-day drop since March 1983, crude oil tumbled to a two-week low and gold, copper and grains fell after money managers made near-record bets on high commodity prices in April.

Silver plummeted 19 percent since April 29 as increases in Comex margin requirements drove investors away, and oil declined after a U.S. report showed supplies surged. A drop in a gauge of U.S. service industries and lower-than-forecast jobs growth damped economic optimism. Twenty-two of 24 commodities in the Standard & Poor’s GSCI Total Return Index fell. Treasuries rose.

Commodities from oil to corn to gold surged for an eighth month in April, with the S&P GSCI index beating bonds, stocks and the dollar every month since December, the longest stretch in at least 14 years. Prices that no longer reflect fundamentals are likely to retreat in the next three to six months before rebounding, Goldman Sachs said in reports April 11 and April 15.

“The big correction in silver kind of led the way, and that got people looking at commodities as a whole,” said Richard Ilczyszyn, a market strategist at Lind-Waldock, a broker in Chicago. “There seems to be a little reduction in risk globally. We’ve seen the equity market pull back, crude pull back, silver and gold. We saw a flood into Treasuries. That tells me people are looking for safety right now.”

Silver futures for July delivery slumped $3.197, or 7.5 percent, to settle at $39.388 an ounce on the Comex in New York. Yesterday’s decline was 7.6 percent, while a day earlier it was 5.2 percent.

Margin Requirements

CME Group Ltd., Comex’s owner, this week raised the minimum amount of cash that must be deposited when borrowing from brokers to trade silver futures to $16,200 per contract from $14,513, effective at the close of business yesterday, the second increase in less than a week. A year ago, the margin was $4,250. Silver futures rallied 57 percent this year through April.

The price touched $49.845 on April 25. Silver reached a record $50.35 in January 1980 as the Hunt brothers tried to corner the market.

The S&P GSCI index fell 1.5 percent to 731.86 at 3:02 p.m. in New York. It reached a 32-month high of 762.22 on April 11.

Oil fell 1.6 percent after the U.S. Energy Department reported stockpiles rose 3.42 million barrels to 366.5 million last week, the highest level since October. Inventories were forecast to gain 2 million barrels, a Bloomberg News survey showed. Lower-than-forecast growth in service industries and employment reduced optimism about the economic outlook.

Bearish Numbers

“The inventory numbers were much more bearish than expected,” said Andre Julian, chief financial officer and senior market strategist at OpVest Wealth Management in Irvine,California. “We were already poised for a move lower when the inventory data and the negative economic numbers came out. This is looking like a perfect time to take risk off the table.”

Crude oil for June delivery fell $1.81 to $109.24 a barrel on the New York Mercantile Exchange, the lowest settlement since April 19. Prices are up 32 percent from a year ago. Gasoline for June delivery slipped 0.2 percent to $3.3225 a gallon. Natural gas for June delivery fell 9.3 cents to settle at $4.577 per million British thermal units on the Nymex.

The Institute for Supply Management’s index of non- manufacturing companies declined to 52.8 last month, lower than the median forecast of economists surveyed by Bloomberg News, from 57.3 in March. Readings greater than 50 signal growth. Another report showed the pace of hiring cooled in April.

Equities, Treasuries

Stocks fell and Treasuries rose on concern that a slowdown in economic growth that began in the first three months of the year is extending into the second quarter. The report validates theFederal Reserve’s decision last week to maintain record monetary stimulus to bolster the world’s largest economy.

Estimates in the Bloomberg survey of 73 economists ranged from 54.5 to 59. The Tempe, Arizona-based group’s index of the industry, which accounts for about 90 percent of the economy, averaged 56.1 in the five years to December 2007, when the last recession began.

The Standard & Poor’s 500 Index fell 0.7 percent to 1,347.31 at 3:05 p.m. in New York. The yield on the benchmark 10-year Treasury note declined today to 3.2 percent, the lowest level since March 17.

Employment at U.S. companies increased by 179,000 in April, the smallest gain in five months, according to figures today from ADP Employer Services. The median estimate in a Bloomberg survey called for a 198,000 gain.

“The investment funds are dumping commodity positions because of the uncertainty about world growth,” said Shawn McCambridge, the senior grain analyst for Prudential Bache Commodities LLC in Chicago. “People are worried that the global consumer is scaling back spending.”

Wheat, Soybeans

Wheat futures for July delivery fell 21.25 cents, or 2.7 percent, to $7.72 a bushel at 1:15 p.m. on the Chicago Board of Trade, the lowest settlement since March 30. Before today, the most-active contract gained 58 percent in the past year as adverse weather reduced global production.

Soybean futures for July delivery dropped 11.75 cents, or 0.9 percent, to $13.52 a bushel, the lowest close since April 15. The price dropped 2.2 percent in the previous two days. Before today, the oilseed, used to make livestock feed and cooking oil, gained 38 percent in the past year.

The U.S. is the world’s leading exporter of corn, soybeans and wheat.

The Thomson Reuters/Jefferies CRB Index of 19 raw materials headed for the biggest drop in three weeks. Only corn, cattle and hogs posted gains today.

Corn Gains

Corn futures for July delivery rose 5.75 cents, or 0.8 percent, to close $7.295 a bushel in Chicago, erasing an earlier drop to $7.1625, the lowest since March 31.

Corn is the biggest U.S. crop, valued at $66.7 billion in 2010, followed by soybeans at $38.9 billion, government figures show. Wheat is the fourth-largest, behind hay, at $13 billion.

Gold futures for June delivery fell $25.10, or 1.6 percent, to $1,515.30 an ounce. On May 2, the metal rose to a record $1,577.40. Before today, the price gained 30 percent in the past year.

Gold declined after a report that Soros Fund Management LLC, the $28 billion hedge fund run by Keith Anderson, has sold much of its gold and silver holdings. The report in the Wall Street Journal today, cited unidentified people. Many of the sales took place over the past month as there was a reduced risk of deflation, according to the report.

Copper for July delivery lost 11.9 cents, or 2.8 percent, to $4.1340 a pound on the Comex in New York.

(Source: http://www.bloomberg.com/news/2011-05-04/silver-has-biggest-three-day-decline-since-1983-leading-commodities-lower.html)